Cross border insolvencies and financial restructurings are remarkably opaque considering we live in the Information Age. The mission of the Centre of Main Interest (the COMI) is to light some candles in the darkness and create a forum for further discussion. The Law Offices of Tally M. Wiener, Esq. are pleased to publish the COMI blog.
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Friday, May 9, 2014

Just how big is Europe's "bad bank" sector?

After decades of building a global investment bank, Barclays is sounding a retreat, the International New York Times
DealBook blog reported. The British bank announced on Thursday plans to
take an ax to its investment banking business — which has major
operations in New York as well as London and Asia — by slashing half of
its capital and more than a quarter of its work force, or 7,000 jobs.
Instead, Barclays will focus on four core areas: retail and corporate
banking, primarily in Britain; credit cards; banking in Africa; and, to a
lesser extent, investment banking. Weaker businesses — including the
trading of physical commodities outside of precious metals and some
European branch networks outside of Britain — will be placed in an
internal “bad bank” where they will be sold or run off. The overhaul
represents a turnaround from the empire-building ambitions of Robert E.
Diamond Jr., the bank’s previous chief executive. Mr. Diamond, a former
bond trader at Morgan Stanley and Credit Suisse First Boston,
aggressively built a global banking franchise after joining Barclays in
1996, culminating in the 2008 acquisition of the bulk of Lehman
Brothers’ investment banking operations. But in the last few years,
embarrassing regulatory investigations and penalties, combined with
capital shortfalls and lackluster returns, have cast a cloud over what
was once the swashbuckling and money-minting side of the bank and led to
the 2012 ouster of Mr. Diamond after just 18 months as chief executive.

Just how big is Europe’s
“bad bank” sector? On Thursday, Barclays PLC became the latest firm to
set one up. The U.K. lender is placing $195 billion of assets into its
“non-core” unit. According to calculations, that means the total value
of assets at all the state-backed and privately-held bad banks set up in
Europe since 2008 has now gone through the $2.5 trillion mark, making
them collectively bigger than J.P. Morgan Chase & Co., which had a
balance sheet of just over $2.4 trillion at the end of last year. (All
currency conversions have been made at today’s rates.) Many of those
assets have already been wound down but nevertheless that’s still a
whole bunch of lousy loans and dodgy derivatives, The Wall Street Journal
MoneyBeat blog reported. In total, more than $800 billion has been
housed in European state-backed bad banks since the crisis, including
those in Ireland (the National Asset Management Agency), Austria (KA
Finanz AG), Spain (Sareb) and the U.K. (U.K. Asset Resolution). Two of
the biggest are in Germany. The Erste Abwicklungsanstalt, which
translates as “First Winding-up Agency,” was set up so that WestLB could
offload some of its bad assets totaling $247 billion. A second German
“bad bank”, FMS Wertmanagement, which is shedding $244 billion of Hypo
Real Estate AG’s assets, was established in 2010. Several European banks
have set up internal bad banks, variously calling them non-core units,
legacy portfolios and non-strategic divisions.